USD: J.P. Morgan Sticks With Weaker Dollar View
J.P. Morgan: "Outlook: We stick with our strategic weaker-dollar call in the wake of the US-China tariff de-escalation. US moderation can continue, albeit with lesser intensity, and lower tariff risk premium supports global growth which keeps the middle of the USD-smile in play. FX/cross-asset corrs starting to normalize. Positioning remains more of a risk for JPY than USD. US fiscal news suggests possibly more thrust than expected, but not final yet; USD to weigh growth vs term premium implications.
Macro Trade Recommendations: Portfolio unchanged. Stay short USD in cash vs EUR, JPY, AUD. Short CHF/JPY in cash. Short GBP vs NOK, SEK cash basket. Short EUR/Scandi in cash and options. Hold EUR/CHF EUR/GBP topside dual digital. Stay long AUD/NZD in cash.
Emerging Markets FX: We turned neutral EM FX last week (from UW before) following the de-escalation in the trade war. EM FX risk appetite has swung from oversold to nearly overbought, limiting near-term upside. Top bullish picks: TRY, ILS, CZK, HUF, MYR, EGP. Top bearish picks: RON, COP, TWD, VND
FX Derivatives: FX vols are sharply lower. Vol premium in G10 looks thin. Lagging, Asia EM and EUR x-vol still contain vol premium. Sell DH USD/INR calls. Buy USD/INR condor put. We are bearish EUR vols and select x-vols. Buy EUR/PLN 4.15-4.30 range or short EUR/PLN atm vs long USD/PLN atm.
Technicals: EUR/USD looks vulnerable to further downside while still below Apr top pattern. Initial cable weakness holds first support at 1.3163, but still looks vulnerable. USD/JPY bounce overshot 147-handle resistance as markets reprice US recession odds lower. AUD/USD looks like an exhausted rally; key support at 0.6344."
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LOOK AHEAD: Eurozone Timeline of Key Events (Times BST)
| Date | Time | Country | Event |
| 25-Apr | 0745 | FR | Manufacturing Sentiment |
| 29-Apr | 0700 | DE | GFK Consumer Climate |
| 29-Apr | 0800 | ES | HICP (p) / GDP |
| 29-Apr | 0900 | EU | M3 / Consumer Expectations Survey |
| 29-Apr | 0900 | IT | ISTAT Confidence Indices |
| 29-Apr | 1000 | EU | Consumer Confidence, Industrial Sentiment |
| 30-Apr | 0630 | FR | GDP (p) / Consumer Spending |
| 30-Apr | 0700 | DE | Import/Export Prices / Retail Sales |
| 30-Apr | 0745 | FR | HICP (p) / PPI |
| 30-Apr | 0855 | DE | Unemployment |
| 30-Apr | 0900 | DE | GDP (p) / State level CPI |
| 30-Apr | 0900 | IT | GDP (p) |
| 30-Apr | 1000 | EU | GDP preliminary flash est. |
| 30-Apr | 1000 | IT | HICP (p) |
| 30-Apr | 1100 | IT | PPI |
| 30-Apr | 1300 | DE | HICP (p) |
JGBS: Twist-Steepener Holds Going Into W/E, BoJ Gov Ueda Reiterates Caution
JGB futures are stronger, +18 compared to settlement levels, sitting near the middle of the range after a choppy session.
- “Governor Kazuo Ueda reiterates his stance that the central bank will carefully monitor if its economic outlook will be realized, accounting for the effects of US tariff measures, without preconception. The BoJ will raise the benchmark rate if the outlook is realized, Ueda says in response to questions in parliament.” (per BBG)
- “Fukoku Mutual Life Insurance Co. plans to invest in Japan's super-long government bonds this fiscal year after their yields skyrocketed. The company aims to increase domestic government bond holdings by ¥30 billion, with gross purchases potentially reaching ¥300-400 billion.” (per BBG)
- Earlier today, Headline CPI for March showed +3.6% y/y versus +3.7% estimate. Core and Core-Core printed +3.2% y/y and +2.9% y/y, respectively, versus estimates of +3.2% and +2.9% and priors +3.0% and +2.6%.
- Cash US tsys are closed today for the Good Friday holiday.
- Cash JGBs have twist-steepened, pivoting at the 20-year, with yields 2bps lower to 5bps higher.
- Swap rates are 2bps lower to 2bps higher, with a steepening bias.
- On Monday, the local calendar will see Tokyo Condominiums for Sale data.
CHINA: Bond Futures Marginally Up Despite Liquidity Injection.
- China’s bond market reacted very little to a second day of sizeable liquidity injection.
- China’s 10YR bond future is up just +0.03 at 109.04 and remains firmly above all major moving averages. The nearest being the 20-day EMA at 108.61.
- The 2YR bond future is down -0.02 at 102.46; remaining below all major moving averages – the nearest being the 20 day EMA at 102.52.
- The 10YR CGB is marginally lower in yield at 1.64%
